1. China has the world’s largest supply of foreign currency reserve and Beijing’s easing restrictions on outbound cash has helped facilitate overseas investment. The government has also eliminated the need for companies to have their out bound investments approved by the State Administration of Foreign Exchange (SAFE).
2. The Chinese government monitors the outflow of foreign reserves and closes the gates if they see too much money leaving the country. However, the government has chosen to leave the gates open despite a massive outflow of foreign reserves making it easier for companies to go abroad.
3. The beginning of Q1 2016 recorded Chinese companies raking up acquisitions approximately $68 billion and $100bn of announced M&A transactions worldwide.
4. This was accelerated by the Government's initiatives such as China’s One Belt One Road (OBOR) inspired by the Silk Road trade path from China to Europe and is expected to build a huge economic corridor taking in almost two-thirds of the world’s population and accounts for one-third of the world’s wealth.
5. This initiative in China’s ‘going global’ objective was forseen when domestic growth slows down and is a major plank for many Chinese companies taking to the international stage.
CHINESE TECH COMPANIES
1.Chinese firms can gain access to advanced technology, international talent, global brands and access to new markets.
2. To make their firms more competitive within China, where costs have increased and competition is heating up across a wide range of industries.
3. Government ambitions of "one belt one road" and "going out". Most Chinese internet companies tend to do well because they design a unique set of offerings for Chinese netizens
4. However, Chinese internet companies are not immune from increasing competition within China and some would rather not go global and to continue focus on the prize at home.
5. Chinese internet firms should develop initial international business experience to set their firm’s up for long-term opportunities in markets outside of China.
ACQUIRING NEW DISTRIBUTION CHANNELS
1. Cheetah Mobile operates in a niche area by investing in creating practical applications that optimize phone security, battery life, and storage capacity.
2. Cheetah spent $58 million in March 2015 to acquire MobPartner, a French mobile advertising and mobile marketing firm.
3. Cheetah develops its international channel by tapping into MobPartner’s existing international infrastructure and global distribution networks.
ACQUIRING NEW BUSINESS SEGMENTS
1. Another way Chinese firms are using M&A to strengthen their overseas footprint is acquiring firms to enter new business segments abroad.
2. C. Banner, a Hong Kong-listed Chinese footwear retailer, agreed to acquire Hamleys, a 255-year-old British toy retailer with 50 outlets around the world.
3. C. Banner intends to use the Hamleys acquisition to further diversify its business by selling toys and a variety of “non-footwear” goods through its partners' overseas retail outlets.
MATERIALS
1. China's biggest overseas investments objective was to secure the raw materials it needs to continue its economic boom.
2. China now produces one third of the world's steel, and its iron ore imports are expected to increase with each passing year..
3. Chinese companies are buying up stakes in iron mines in Australia, copper mines in Chile, and nickel mines in Papua New Guinea.
4. China has been investing heavily in Africa to secure oil supplies - often dealing with countries that the West has shunned, like Sudan.
TRADE SURPLUS
1. The Chinese government has accumulated a huge trade surplus of $63.3 billion. in Q1 2016, with an investment fund to invest in overseas companies and markets.
COMPETITION
1. Shanghai Automotive, China's biggest domestic carmaker, owns Korean firm Ssangyong, while Nanjing Motors owns the UK's MG Rover.
2. Chery exports small cars mainly to the Middle East and Eastern Europe.
3. Many Chinese-designed cars may not yet be marketable in developed markets, but the government believes that moving into international markets will force companies to become more competitive.
CHALLENGES
1. Significant challenges remain for Chinese companies that have their sights set on overseas expansion with state-owned Chinese enterprises (SOEs) facing greater scrutiny in Europe over merger thresholds with failures to adhere to guidelines punishable with sizeable fines and unsolicited bids from Chinese companies looking to expand overseas faced with protracted and costly takeover battles.
DIFFERENT STRUCTURE, MARKET AND CHALLENGES
1. Different target country and types of plans whether a merger, a takeover or a greenfield investment require different strategy. Additional factors such as whether the acquiring company is state-owned o private too poses challenges. Each format will require unique procedures and stategies.
2. Chinese SOE tends to be more compliant-based than private or greenfield firms that priotize sales as the number one objective.
NURTURING LEADERSHIP AND TALENT
1. With the sheer level of acquisitions by firms could lead to experienced Chinese personnel being headhunted resulting in a lack of consistency that can often slow the acquisition process or create compliance backlogs further down the line due to high staff turnover.
2. This in turn leads to less long term collaboration with other country's management departments within the new organisation.
3. It is important that there is business consistency at the target company to ensure levels of trust and communication are maintained. So retaining local management to achieve the right mix between local and Chinese culture is an important consideration.
BALANCING PROFIT AND COMPLIANCE
1. In an overseas expansion scenario, the focus will often be on the financials, profitability and growth. However, equal importance should be given to sales and compliance appointments at the outset, either internally or through the expertise and local knowledge of trusted third-party advisors.
2. Failure to adhere to local compliance would result in a major loss of business reputation as local clients and suppliers refuse to do business with a company deemed noncompliant.
MANAGING GROWTH EXPECTATIONS
1. The ROI reports focus on pre- and post acquisition costs or the cost of setting up a greenfield business, rather than the total cost of doing business overseas.
2. Companies should include be aware of embedded costs relating to labour laws such as notice periods, health and insurance contributions that need to be taken into account.
3. Therefore shareholders and directors shoul manage expectations on the level of return taking into consideration the total costs involved.
PUBLIC RELATIONS
1. Getting the companies' message across to a wider audience beyond the boardroom is key.
2. The PR techniques employed should also be sensitive to the needs of the investors and I will post the challenges faced and techniques used by chinese companies expanding into the international market.
